Pentagon keeping $5M per jet until Lockheed finishes F-35 upgrade

The Pentagon is withholding $5 million from Lockheed Martin for each new F-35 fighter jet that isn’t loaded with the full upgrade of the latest version of the jet.

The company resumed deliveries of the Technology Refresh-3 variant of the F-35 in July—one year after problems with developing the new software package led the Pentagon to stop accepting the latest version of the jet. Since the upgrade still isn’t ready, the Pentagon restarted accepting jets with an interim version of the TR-3 software.

“As a portion of the agreement, approximately $5 million per aircraft is being withheld and will be released as combat capability is delivered,” according to F-35 Joint Program Office spokesperson Russ Goemaere. 

Lockheed plans to deliver between 75 and 110 aircraft in the second half of this year, “primarily in the TR-3 configuration,” according to a 10-K filing from the company, but $5 million per jet will be withheld until the upgrade is complete.

Air Force Secretary Frank Kendall told reporters in July that Lockheed is trying to get TR-3 done “but we are using financial incentives to strengthen that a little bit.” 

The JPO office also announced a small milestone today for the upgrade effort: they’re moving from delivering jets with an “initial training capability” to a “robust combat training capability.”

“The F-35 Joint Program Office and Lockheed Martin have reached an agreement for the acceptance and delivery of Technology Refresh 3-enabled aircraft with robust combat training capability,” Goemaere said. 

Aircraft that have been delivered with initial training capability will be updated with the more robust training capability, Goemaere said. 

Pentagon officials still don’t know exactly when the actual combat-ready TR-3 package will be done. Lockheed officials say next spring, but admit that there’s “always risk” to the schedule.

To clear the backlog of new F-35s that have been piling up at Lockheed’s facilities, the company plans to “unwind” by delivering 20 aircraft a month (13 newly-built aircraft and seven of the jets that were in storage). Company officials estimate it will take them about a year to fully clear the backlog. 

The Pentagon needs the new TR-3 hardware and software to serve as “the “backbone” for Block 4—which will be a suite of new capabilities officials say are needed to outpace China. But after many delays and cost overruns with the upgrade program, some of the original capabilities planned for Block 4 have been pushed out so the F-35 program is now “reimagining” Block 4 and redefining the “must-have” capabilities that industry will actually be able to deliver.